Monday, April 13, 2020

Market Share Expert Not Required for Market Share Damages Analysis

DNOW Canada ULC v Estate Grenke 2020 FCA 61 Dawson JA; Rennie, Rivoalen JJA var’g 2018 FC 564 Phelan J
            2,095,937 / stuffing box

It has been a decade now since Phelan J held Grenke’s 937 patent to be valid and infringed in Weatherford v Corlac 2010 FC 602 — so long that the parties or their names have almost all changed for one reason or another — and this is the fourth (dare I say final?) trip to the FCA. The decision now under appeal, 2018 FC 564 (here), is Phelan J’s award of $8 million in damages [9]-[10]. The defendants alleged a variety of errors by Phelan J in his assessment of the facts. While the FCA noted in couple of places that Phelan J’s reasons might have been more detailed [61], [113], the Court rejected most of these challenges on a deferential standard of review [19]-[20]. No new law was applied (the decision starts with a handy review of damages principles [18]), but there are a couple of points worth mentioning.

The 937 patent relates to an environmentally friendly stuffing box that prevents oil from spilling out of the top of a production oil well. During the relevant period, there were three main manufacturers in this market, including the plaintiffs and the defendants, along with some smaller players [35]. Total sales volume was on the order of a couple of thousand units annually [41]. Phelan J used historical market share as the basis (with adjustments) for assessing lost sales. The FCA affirmed that a market share analysis was appropriate on the facts; this is not a case, such as Alliedsignal 1998 CanLII 7464, with only nine customers in the market, in which a review of the evidence on a customer-by-customer basis would be necessary [68].

The plaintiffs relied on only one witness for the market share analysis [46], and the defendants objected to the witness’ qualifications on the basis that he not qualified as a “market share expert” [48]. (Presumably that means an accountant or economist with expertise in market assessment and modeling.) However, the witness in question was an expert on the industry and its purchasing preferences; he had personal knowledge of product offerings and the merits of available products, and of the market generally, from his long experience as a purchaser in the industry. The FCA held that it was not an error for Phelan J to have relied on this evidence in assessing the market share lost as a result of the infringement [76]-[78].

A final point of interest concerns loss of “convoyed” sales. “Convoyed” products are products that are not themselves protected by the patent, but that are typically sold with, or as a result of, the sale of a patented product [142]. The FCA reaffirmed that “An entity claiming under a patent is ‘entitled to damages assessed upon the sale of non-infringing components when there is a finding of fact that such sale arose from infringing the patented component’ [143] (quoting with approval Beloit v Valmet-Dominion Inc [1997] 3 FC 497 (FCA). However, the FCA stressed that the mere fact that the convoyed goods in question are commonly sold with the infringing goods is not sufficient to establish causation: [153-55]. What is required is “a specific finding based on evidence” that the loss of sales of the convoyed parts was caused by the loss of sales of the infringing products [154]: “‘[s]imply because a non-infringing product appears on the same invoice as a drive is not sufficient to establish causation’” [151] (quoting and agreeing with the appellants’ submission). The FCA was of the view that Phelan J had erred on this point [156], and, after assessing the evidence itself, held that no damages for lost convoyed sales should be awarded [169]. This was the sole point on which the FCA reversed Phelan J.

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